Crisis in Greece: Experts Call For Return Of Drachma – OpEd

This week’s G20 Summit in Cannes was overwhelmed by the Greek economic crisis, when Prime Minister George Papandreou (who was not invited) threw a huge spanner into the works by stating, while the ink was still drying on the latest bailout plan for the Greek economy, that he would be submitting the agreement to a referendum. In response, the markets took fright, the G20 leaders ran around like headless chickens, and Papandreou was left fighting for his political survival when his finance minister and long-time rival, Evangelos Venizelos, publicly opposed the plans.

As was reported early this morning, the latest news is that, although George Papandreou narrowly won a vote of confidence last night, he “has agreed to step aside to make way for a government ‘of broad acceptance’” that, it seems, will be led by Evangelos Venizelos. As the Guardian explained, “The deal with Venizelos was struck in a desperate bid to avoid snap elections that Papandreou said would be ‘a catastrophe’ for a country on the edge of political and economic collapse.”

Prominent voices call for the return of the drachma

The referendum may have been cancelled, but that doesn’t mean that the huge problems with the bailout deal for which George Papandreou wanted a referendum have been resolved. In the last few days, these problems have, to my surprise, been most eloquently explored in the mainstream media outside Greece in a column for Fox News by Peter Morici, a professor at the Smith School of Business, University of Maryland School, and former chief economist at the US International Trade Commission.

In his column on Thursday, Morici began by explaining that, although the latest bailout plan for Greece involved writing off half of the debt held by private institutions, it also involved a further round of “draconian austerity measures” that will be ruinous for the Greek people, as they will “further drive up unemployment, and shrink Greece’s economy and tax base at an alarming pace, placing in jeopardy eventual repayment of Athens’ remaining debt.”

“Ultimately,” he added, “Greeks would face reductions in their standards of living upwards to 50 percent, perhaps more, to generate the exports necessary to pay off foreign creditors. If everything goes as planned, Athens will still be saddled with a debt that is 120 percent of their GDP a decade from now. Everything hardly ever goes exactly as planned, and 120 percent of GDP is an amount most economists believe is unworkable. Hence, the Greeks may bleed a lot for no real purpose than to sustain a failed experiment in a single currency, and the odds are steep against the plan succeeding.”

The reason this harsh experiment in austerity might not succeed, it is clear, is because the imposition of the austerity measures seems guaranteed to cause an  “economic meltdown” that may snowball within a year or two.

Professor Morici believes that the Greek people “should be given the opportunity to vote on taking such a gamble, and their fate should not be left to leaders far beyond their borders and who they did not elect,” adding, “It is convenient for Europeans to blame the Greek mess on a government and citizens who deluded themselves into believing they could live beyond their means — forever — but the euro zone was fundamentally flawed from the start. It lacked the common fiscal institutions needed to somewhat equalize the social safety net across its participants.”

He added that this fundamental flaw in the pan-European project has meant that some countries, like Greece, Italy, Spain and Portugal, have found themselves overvalued, while others — Germany, for example — have been undervalued, making Germany “hyper-competitive,” and leaving Greece and its Mediterranean companions “with chronic trade deficits, shortages of currency, the need to borrow, and eventually the crises these nations face today.”

The bailout plan, he declares, “is a giant band aid for a failed euro and the mistaken belief that a common currency is necessary for a united Europe,” adding, “The EU was making very good progress toward an integrated continental market and greater political and cultural cohesion before the euro. The euro has become a symbol without a purpose — indeed a symbol with a destructive end.”

These reflections about individual nations’ blame versus EU irresponsibility struck a chord with me, because, after visiting Greece in summer and seeing how hard those who had jobs were working, in a country with mounting unemployment, I have found it depressing to speak to various fellow citizens of mine in the UK, who have put all the blame on ordinary Greek people, and not on the government that took money it couldn’t afford to pay back, and on the foreign banks that lent the money, even though they knew about the risk involved and pretended to ignore it.

The Greek people may, collectively, have been guilty of a damaging shyness regarding taxes, and the politicians who took the EU money may have been profoundly unwise to do so, but if my government took out unwise loans and then blamed me when they couldn’t be repaid, I would be out on the streets protesting, and not sitting at home trying to blame myself for my government’s actions, whether or not I had voted for them.

To my mind, the Greek people are being required by foreign banks to accept an economic death sentence, in which, stripped of their assets by creditors and plunged into an ever-increasing spiral of unemployment, they are unable to ever recover because their economy is fatally wounded, and incapable of raising enough revenue to dig them out of an ever-growing hole, servicing an unconquerable debt mountain.

The alternative, as Professor Morici proposed, is for Greece to be “given the option of staying in the EU but dropping the euro — essentially the status the UK enjoys.” He added, crucially, “By readopting the drachma, re-marking sovereign and private debt to the reinstituted national currency, and letting the value of the drachma fall to levels consistent with a trade surplus that permits Greece to service its debts, Greece’s economy would begin growing again, and many of Greece’s army of unemployed would be put back to work.”

He also explained, “With a reinstituted drachma, foreign creditors would receive payments on Greek debt less than they are currently owed,” but if the Greek economy were to be “more fully employed and generating exports,” the losses involved “would be far less than will ultimately occur though the mindless austerity now imposed.”

The return of the drachma was also mentioned in a New York Times article on Tuesday, in which it was noted that opting out of the Euro would mean that “depositors would take their money out of local banks and, with a sharp devaluation of as much as 50 percent, inflation would loom.” It was also noted that “[a] return to the international credit markets would take years.” However, reinforcing Peter Morici’s viewpoint, the Times also noted that, although “there would be disruption and panic initially,” the precedent of Argentina, “when it broke its peg with the dollar in 2002,” indicated that a cheaper currency would create an “export boom,” ignited “the ability to control the drachma would eventually work in Greece’s favour.”

Vasilis Serafeimakis, a senior executive at Avinoil, one of Greece’s largest oil and gas distribution companies, said that, at present, “The real problem is that we are operating under a foreign currency. If we had our own currency, we could at least print money.” Costas Lapavitsas, a Greek economist at the University of London, and a longtime advocate of returning to the drachma, told the Times, “The view that Greece should exit the euro is more widespread than you would think. It is just that the opposing view is so dominant.” As the Times put it, he had been “educating himself about the euro” for over a year, “convinced that the benefits from a devaluation of Greek’s currency, while no doubt painful, would result in a return to growth more quickly than further wage cuts and layoffs.”

The Times also noted that many other “prominent voices” have been arguing that “it is impossible for Greece to regain competitiveness while clinging to the euro currency,” including “prominent economists like Nouriel Roubini, Kenneth S. Rogoff and Martin Feldstein, as well as the investor George Soros.”

Recently, Stergios Skaperdas, a Greek economist at the University of California, Irvine, argued in an academic paper that “a cheaper drachma would stem imports, bolster exports and, crucially, give Greece the flexibility to control its own monetary policy and ease the effects of fiscal retrenchment,” although he “conceded that getting this view across remained a difficult one as many Greeks found it troubling to accept that their euro dream might be over.” As he put it, “For most Greeks, including economists, adopting the euro was like marrying a dream spouse — beautiful, intelligent, caring, even rich. And then, rather suddenly, the marriage turned into a nightmare.”

Although the mainstream view is more typically voiced by economist and former government advisor Yannis Stournaras, who said, “There is no way that Greece leaves the euro … We would have a disorderly default, the debt would double — it is out of the question,” another academic, Theodore Mariolis, an economist at Panteion University in Athens, recently argued that “the No. 1 problem for Greece under the current system — ahead of debt sustainability, unemployment and the problems of a mismanaged public sector — was its international competitiveness, which he said had declined 30 percent since the country embraced the euro.” He estimated that “a 50 percent devaluation of the new drachma would soon erase this competitiveness gap.”

At the conclusion of his Fox News article, Peter Morici stated that the Greek people should only “accept the bailout and continue in the euro only if they determine the currency serves them well,” and that, as it currently stands, that may not be the case. “As currently constituted,” he notes, “a single currency may serve the ‘One Europe’ designs of France and Germany, but make Greece and the other Mediterranean states nothing more than the victims of a northern conquest.”

Resisting “northern conquest”

This notion of conquest is something that has been running through the Greek people’s response the crisis, but has not generally gained much attention outside Greece itself. Last Friday (October 28), for example, was the national Greek anniversary of OXI, meaning, “no,” when Greece entered the Second World War after saying “no” to the Italian Ambassador, who brought a demand from Benito Mussolini, insisting that Axis forces be allowed to occupy certain unspecified “strategic locations” in Greece.

Last Friday, as noted in a “Letter from Athens: OXI = No! Occupy the Acropolis!,” an unidentified Greek academic wrote about the occupation of the Acropolis, when “a group of artists, authors and academics smuggled a big OXI sign into the Acropolis, wrapped up round the body of an excellent theatre actress under a very large coat.” The author noted that the protestors “managed to demonstrate for more than half-an-hour,” and succeeded in doing so because the police were distracted by ther main protests in Syntagma Square, and “none of them managed to climb the Acropolis in time.” Below is a video of the occupation, and other videos are here and here. The author explains that “the main slogan heard is: NO at 1940, NO again by us today, the occupation will be kicked out of Greece again.”

The author also explains that, of the two songs sung, “the first is a 19th century song sung by the Cretan rebels at the various rebellions against the Turkish occupation, calling for armed resistance, which we sung at all the illegal demonstrations in Athens and Salonica during the last two years of the Military Junta and which I hadn’t sung or heard sung since,” and “the second is the Greek National Anthem ‘Ode to Freedom,’ written by a great 18th-19th century poet, Dionysios Solomos, who was also a Garibaldist, about the 1821-1825 war for National Independence, which I had also not sung since the end of the dictatorship, more than 30 years ago.”

Manolis Glezos and the longer view of resistance

Mention of the resistance to the Italians under Mussolini — and the Nazis — is also central to the opposition to the Greek crisis mounted by the celebrated Socialist and activist Manolis Glezos, who, 70 years ago, as the Guardian noted in a profile in August, “scaled the walls of the Acropolis to tear down the swastika, hoisted over the monument that Hitler had triumphantly described as a symbol of ‘human culture.’ This single act of defiance — the first direct action against Nazi rule in Greece — would go on to cast the headstrong young man as one of the country’s greatest defenders of democracy.”

Now 89, Glezos, who, after the war, spent nearly 20 years in prison (much of it in solitary confinement), during Greece’s civil war its years of military rule, is now fighting a new enemy, and “has become a symbol of resistance in another, very different sort of war” — on that has pitted Greece “against the forces of world capitalism and thrown it into an unprecedented struggle for its economic survival.” Speaking to the Guardian, Glezos, who had once more assumed an iconic position, after pictures of him “being teargassed by a riot policeman outside the Greek parliament” in March 2010 “sent a tremor through Europe’s nascent anti-austerity movement,” said, “Not since the German occupation have we been in such a difficult and dangerous situation. Economically, democratically, the Greek people are seeing hard-won rights being wiped away. Unemployment is growing, shops are closing daily and decisions that are totally unconstitutional are being made.”

“People are not going to back down. They are very conscious of what they want,” he added, ,explaining that, although it was summer, and the protests were on hold, he had “been very busy attending neighbourhood assemblies to discuss what our future tactics might be.”

However, although he was “appalled by the harshness with which rallies have often been crushed,” he reserved his “greatest criticism” for the behaviour of Germany and Britain, which, he said, were both guilty of “enormous ingratitude.” As he explained, “Germany today lives not under Nazi rule but in a state of freedom and that it owes in great part to the struggle of the Greek people,” adding that “Hitler’s disastrous decision to postpone the invasion of the Soviet Union” was “a result of the unexpected resistance encountered in Greece.”

“Then,” he said, “there is the issue of food. If German people are alive it is because Greek people died.” He explained that he had “not forgotten the howls of the starving or the images of municipal carts carrying the corpses of those who, during the Nazi occupation, collapsed begging for food in the streets of Athens.” As the Guardian added, “He knows not only because he was there; he counted them.”

He explained: “I worked in the statistics office of the International Red Cross and every day I would note the deaths of around 400 people as a result of famine. We lost 13.5% of our population, more than any other occupied country, because all of our foodstuffs, our crops, were requisitioned [by the Wehrmacht]. For those two reasons alone Germany should help Greece.”

He also revisited Greece’s importance to the Allies, mentioning how Greeks defeated Mussolini’s forces on the Albanian front in 1940, and asking, “Who did Churchill so famously say fought like heroes? Britain should have tried and helped Greece at this difficult moment. Its behaviour should have been different.”

Providing a detailed analysis of Greece’s suffering, he said, as the Guardian put it, “It wasn’t just the famine and the thousands killed in reprisals as a result of mass resistance, or the eradication of virtually all of Greece’s once vibrant Jewish community or the destruction of the countryside.” It was also “the other indignities suffered by Greece under Hitler.” The included “[t]he pillaging of archaeological treasures, the plundering of factories and homes, the looting of national resources, the crippling of the Greek economy” — “all part of what Churchill would go on to call the ‘long night of barbarism’ and from which,” as Glezos added crucially, “it has yet to recover.”

Just as significantly, Glezos, who is the head of the National Council for the Reclamation of German Debt, added, “To this day, Greece remains the only country in Europe that never received reparations from Germany. We never got back any of the antiquities that they took, or the buildings that they seized, or the tons of silver and nickel that they stole. If you take into account the enforced occupation loan, I estimate that they owe us around €162bn, plus interest.”

In addition, Glezos proposed that Germany should directly “fund companies in Greece and scholarships for students bound for Germany by way of compensation,”  and is “infuriated that Greeks are invariably typecast by the German media as lazy laggards when studies show them working the longest hours in Europe.”

Again striking at the heart of the matter, he stated, “The latest agreement to save Greece is all about saving banks and financial capital, not people. After the war, we won our freedom but we emerged as vassals, first of the English and then the Americans. Being indebted in this way keeps us in that subordinate role. Our new masters are the troika [the EU, IMF and ECB] and they have to go. Mark my words, the Greeks will play a pivotal role in resisting the policies they want to impose.”